RC2 shares jump on 1Q earnings

Shares of RC2 Corp. jumped 35 percent on Wednesday after the maker of toys and children's products reported first-quarter results better than analysts expected, indicating turnaround efforts may be gaining traction.

Analysts had expected the Oak Brook, Ill.-based maker of Thomas & Friends Wooden Railway to report a loss for the quarter, but it posted net income of $1.8 million, or 10 cents a share, for the period that ended March 31, down from $2 million, or 11 cents a share, in the same period a year earlier.

Excluding one-time items, RC2 said late Wednesday, its profit totaled 11 cents per share.

Sales were weak across most product categories, hurt by the stronger dollar and conservative orders from retailers. But RC2 said sales in its mother, infant and toddler product categories rose 2 percent. Sales of Thomas & Friends products also rose.

RC2 last year struggled with recall-related costs and declining sales and last quarter took a hefty impairment charge related to the steep drop in its share price. The stock has fallen about 76 percent from its August 2008 peak.

In an effort to turn things around, RC2 implemented a cost-cutting plan, including cutting jobs. On Wednesday, RC2 indicated the plan was gaining traction as the company lowered inventory levels and operating expenses and paid down $19 million in debt.

RC2 said it expects its results for the current quarter to be below prior-year earnings. But it maintained its full-year earnings guidance of $1.35 per share, excluding items, which is higher than the $1.32 per share analysts expect.

BMO Capital Markets analyst Gerrick Johnson said the announced results were good news for a company that has struggled through two years of "bad news and bad luck."

"In addition to exceeding earnings-per-share expectations, the company appears to be getting its infant care business back on the path to growth, while Thomas & Friends sales look to be stabilizing," he added.

He kept his "Market Perform" rating on the stock, however.

"We still hold some concern that it may be too early to get overly optimistic based on this first-quarter outperformance," he cautioned.

Enthusiastic investors sent shares up $2.27, or 35.5 percent, to $8.67 during midday trading. They remained close to the low end of the stock's 52-week trading range of $3.22 to $27.09, however.